Basic Stock Investing For The Beginner

Investing basics for the beginner who wants to get into the market.

Investing is one way that can make your money grow. However, there are many things that need to be known before investing. The basics are not hard and can be learned by anyone. The earlier you learn it the better.

Before investing there are a few factors that you must take into into consideration. You need to know the basics first. Many people make the mistake of jumping into the market without doing any research. After learning, the beginner can start investing without any uncertainty.

First of all, there are some terms you should be familiar with when investing. You probably heard of bear markets and bull markets. What do they mean? A bull market is when a particular financial market, as a whole, is doing great. In a bull market, most stocks are going up. In a bear market, most stocks are going down.



When you purchase stock in a company, you become part owner of the company and share in its profits. The more shares you buy, the more ownership you have (usually your ownership will be a small fraction of the company). Let's say you have $1,000 to invest. You invest your $1,000 in a company that is selling at $10 per share. Therefore, you can buy 100 shares in the company. If the company's share price is $11 per share the next day, then you have a profit of $1 per share. Your total return is $1,100, a gain of $100. That's a nice 10 percent return in one day.

Here are some factors to consider before investing:

Debt: Do you have any debt? Take care of this first and foremost. Debt slows you down and keeps you from achieving your financial goals. Get rid of debt because the credit card bills compound interest just like the stock market does.

Timing: When will you need the money? The longer you keep your money invested the better chance it has to grow. The stock market has historically given average returns of 11% per year. Never try to time the market. Nobody knows when the market will fall or when it will rise. Nobody has ever been able to consistently predict the market, it's impossible.

$100 compounded at 10 percent per year:

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Year 1: $110

Year 2: $121

Year 3: $133

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Year 50: $11,739

Your $100 has grown to $11,739 in 50 years. Not much happens in the early years, but as time goes on, you begin to see the miracles of compounding. Don't worry about short term fluctuations or bear markets. Financial markets always recover and bull markets do return. The longer you keep your money invested, the bigger your total return will be.

Save: You can't invest without any money. Put some money aside from each check. It doesn't matter how much. If you are older and have to pay bills, go ahead and pay them, but don't spend the rest on unnecessary things. If you save $50 a month for 12 months, you will end up with $600 extra dollars at the end of the year.

Risk: Are you a risk taker? Can you live through market fluctuations? The stock market can fluctuate very sharply and go through rough times. You should understand your risk tolerance before you invest. Low risk investments are bank savings accounts, CD's, and bonds. Higher risk investments are stocks, options, and futures. The lower your risk, the lower your return. The higher your risk, the higher your return. There are no investments that are low risk with high returns.

Goals: What are you investing for? What do you plan to achieve? Maybe you want to buy a car, put a down payment on a house, put your son or daughter through the best college because they're worth it, or retire early and enjoy the rest of life. Everyone needs a reason for doing something. Likewise, you should have a reason to invest. Your goal will have an affect on what type of investment to make. Your goal be achieved by getting rid of debt, saving, and investing.

Consider these factors, answer these questions, and when you're done you will be ready to invest.

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